“Join the hundreds of foster parents across the United States who are meeting the needs of these vulnerable children and youth in the Unaccompanied Refugee Minor Program.”
Read more: http://www.usccb.org/about/children-and-migration/foster-care/index.cfm
Despite the limitations imposed on “passive investment income” by the Internal Revenue Code, a subchapter S corporation is a solid choice for operations which obtain most of their income in the form of capital gains. This includes day traders, swing traders, and family offices.
The tax benefits of the S corporation to owner-operated trading firms are well known, as described in this Forbes article. An S corporation must pay the owner-operator a fair market salary for management services, which generates self-employment income for the purpose of retirement plan contributions, health insurance premium deductions, and other deductions applied to AGI. At the same time, the S corporation can pass through net operating losses which are then further deductible to the owner-operator (to the extent of the owner’s basis in the S corporation).
The combination, when implemented by a knowledgeable tax practitioner, saves thousands in taxes compared to the alternatives.
Even better, net capital gains realized by the S corporation are passed through to the owner and taxed at the preferential individual capital gains rates (as low as 0% and a maximum of 23.8% as of 2017) instead of the much higher individual or corporate income tax rates.
But there’s one potentially major problem: IRC 1362(d)(3)(A). This section provides for automatic termination of a corporation’s S status if for three consecutive tax years, more than 25% of the S corporation’s gross receipts consist of “passive investment income”. The intent seems to be to discourage the use of an S corporation as a holding company.
That caveat potentially pours cold water on using the S corporation for management of financial assets, since a corporation with terminated S status cannot re-elect S status for five years afterwards.
So what exactly is “passive investment income”? IRC 1362(d)(3)(C) provides a definition, but let’s first look at some other definitions of passive income in the tax code for context.
The basic definition of passive activity income comes from IRC 469. The rules define any income-producing activity in which the owner does not materially participate, as well as rents regardless of material participation (unless the taxpayer elects real estate professional status), as a passive activity. However, what could be called portfolio income (unearned income not derived from a trade or business), which would otherwise be considered passive by that definition, is specifically excluded from the definition in order to eliminate the possibility of using such portfolio income to unlock passive losses which would otherwise have to be suspended. The types of portfolio income excluded here are:
For passive foreign investment companies (PFIC), “passive income” is defined in IRC 1297(b) as any income that would be considered foreign personal holding company income (FPHCI) in IRC 954(c). The types of income subject to punitive anti-deferral rules in both cases are:
For tax-exempt entities such as nonprofits, 401(k) trusts, and IRAs, IRC 512(b) defines the types of income which are considered not to be income from a trade or business — and thus avoid treatment as unrelated business taxable income (UBTI). (This is probably intended to limit tax-exempt entities to obtaining portfolio [unearned, non-business] income, with the presumed goal of preventing tax-exempt entities from engaging in competitive business while in possession of a tax advantage perceived to be unfair.) These categories are:
For tax-exempt private foundations, a 2% excise tax is imposed on “net investment income”, defined in IRC 4940(c) as:
This looks terrible for the S corporation owner. Why? In at least four other places in the tax code, the IRS groups capital gains with other forms of portfolio income. If capital gains are included in the definition of “passive investment income”, then a trading company that takes most of its entity-level income as capital gains could hardly avoid revocation of S status.
And in fact, until 2007 that was exactly the case. IRC 1362(d)(3)(C)(i), as of 2006, read:
Except as otherwise provided in this subparagraph, the term “passive investment income” means gross receipts derived from royalties, rents, dividends, interest, annuities, and sales or exchanges of stock or securities (gross receipts from such sales or exchanges being taken into account for purposes of this paragraph only to the extent of gains therefrom).
So a trading company whose income consisted primarily of capital gains on real property or other non-stock, non-security property could avoid revocation of S status, but not one whose income consisted primarily of capital gains on stock or securities. Avoiding revocation of S status for a day-trading corporation would have been impossible under those terms.
Fortunately, this section was amended by a rider on the a 2007 appropriations bill. The modern language now states:
Except as otherwise provided in this subparagraph, the term “passive investment income” means gross receipts derived from royalties, rents, dividends, interest, and annuities.
Note the excision of the entire section that had previously defined capital gains as “passive investment income” for an S corporation.
This particular Internal Revenue Code attempt at a definition of passive income manages to be inconsistent with all the others. However, the inconsistency is one that happens to fall squarely in the favor of the S corporation as the entity of choice for traders.
There are many rules to follow when buying, selling, and transporting precious metals in and out of the US to protect one’s privacy and prevent police harassment and/or outright confiscation.
Anyone buying precious metals in the US should ensure that any precious metals purchase with cash banknotes is kept under $10,000. Doing so will avoid triggering the seller’s obligation to file IRS Form 8300.
Anyone buying precious metals in the US should also ensure that cash withdrawals made for a precious metals purchase (or for any other purpose) are kept under $10,000, and not ‘structured’ in a way that appears to be intended to avoid reporting. Doing so will avoid triggering the financial institution’s, or the individual financial institution’s agent’s, obligation to file a FinCEN Form 112, Currency Transaction Report (CTR) or a Treasury/OCC Suspicious Activity Report (SAR).
Anyone buying precious metals in the US through a series of transactions involving cash banknotes or monetary instruments such as cashier’s checks, money orders, bank drafts and traveler’s checks should ensure that the series of transactions does not sum to more than $10,000. Doing so will avoid triggering the seller’s obligation to file IRS Form 8300 regarding the ‘related transactions’.
Anyone buying precious metals in the US should ensure that monetary instruments such as cashier’s checks, money orders, bank drafts and traveler’s checks drawn for a precious metals purchase (or for any other purpose) are kept under $3,000. Doing so will avoid triggering the financial institution’s obligation to enter the transaction into a Monetary Instrument Log (MIL).
For the best price, a US precious metals buyer should buy from a dealer in a state which does not tax precious metals sales, in a state which has no sales tax, or who has no sales tax nexus to the state to which the precious metals are delivered by common carrier. In the latter case, sales tax should not be charged at point of sale but the state may require use tax to be paid by the buyer after delivery if it becomes aware of the sale.
Anyone buying precious metals should always keep purchase receipts to establish capital gains tax basis at the future time of sale, especially since long-term capital gains (when the sale is made one year or more after purchase) on physical precious metals are taxed in the US at the “collectible” rate of 28%, much higher than the 20% long-term capital gains rate for other assets. Regardless of the tax rate, inability to establish basis at the time of sale creates the risk of the basis being assumed to be zero by the tax authority in the jurisdiction of sale. The effect would then be to punitively apply gains tax to the gross sale proceeds.
A US non-corporate taxpayer selling precious metals should avoid selling the following products in the US (subject to revision) in order to avoid triggering a US seller’s obligation to file Form 1099-B.
| Reportable Item | Minimum Fineness | Minimum Reportable Amount |
|---|---|---|
| Gold Bars | 0.995 | Any size bars totaling 1 Kilo (32.15 troy oz) or more |
| Silver Bars | 0.999 | Any size bars totaling 1000 troy oz or more |
| Platinum Bars | 0.995 | Any size bars totaling 25 troy oz or more |
| Palladium Bars | 0.9995 | Any size bars totaling 100 troy oz or more |
| Gold 1 oz Krugerrand | as minted | Twenty-five (25) 1 oz coins |
| Gold 1 oz Maple Leaf | as minted | Twenty-five (25) 1 oz coins |
| Gold 1 oz Mexican Onza | as minted | Twenty-five (25) 1 oz coins |
| U.S. 90% Silver Coins | as minted | Any combination of dimes, quarters, or half-dollars totaling $1,000 face value or more |
Regardless of whether a precious metals sale is reported, a US taxpayer will always owe capital gains tax on any net gain (offset by any losses, subject to limitations). For items classified as collectibles, the maximum US long-term capital gains rate (applicable if the item is held for more than one year after purchase) is 28%. As a practical matter, only the proceeds of transactions that the authorities become aware of can be taxed.
Be aware that carrying any amount of valuables inside the US on one’s person or in a vehicle is always subject to arbitrary confiscation by the police. Appropriate insurance is recommended.
Be aware that carrying any amount of valuables inside the US on one’s person or in a vehicle enroute to an international departure is always subject to arbitrary confiscation by the police or by airport security personnel. Appropriate insurance is recommended.
Outbound transfers of “currency, traveler’s checks, and certain other monetary instruments” in an aggregate amount exceeding $10,000 require that you file a FinCEN Currency and Monetary Instruments Report (CMIR). This may include precious metals coins with a nominal face value expressed in a national currency. A 2011 FinCEN ruling seemed to cryptically indicate that Canadian Silver Maple Leafs were not considered currency. Be advised that even while the aggregate face value of the precious metals coins may be much less than $10,000, the “aggregate amount” as interpreted by airport security, customs, and other authorities may in any instance be instead interpreted as the aggregate fair market value of the precious metals coins so that they can be confiscated prior to departure.
Outbound transfers of certain commodities intended for commercial export are required to be reported on a Census Bureau “Shipper’s Export Declaration.” You must complete this declaration when you transport certain “commodities” (including gold and silver) out of the United States if the shipment has a value of $2,500 or more. Failing to file the declaration can result in not only confiscation of the commodities not declared, but also a fine up to $10,000 and possible imprisonment. Unfortunately, precious metals do not fall into the safe harbor definition of ‘personal effects’ that would exempt them from treatment as having been intended for commercial export, so the authorities are allowed a great deal of discretion if receipts for personal purchases are not carried.
When carrying precious metals across international borders, the rules in every connecting jurisdiction will need to be observed. For example, when entering European countries, typically “commodities of exceptional value” with a total value exceeding EUR 10,000 require reporting to avoid confiscation.
Be aware that carrying any amount of valuables inside the US on one’s person or in a vehicle enroute to an international departure is always subject to arbitrary confiscation by the police or by airport security personnel. Appropriate insurance is recommended.
Inbound transfers of precious metals must observe the same FinCEN CMIR filing requirements as above.
Inbound transfers of investment-grade precious metals for import are, astoundingly, not subject to import duty, but they must be declared to the authorities in any case. Carrying Cuban, Iranian, or Sudanese precious metals coins into the US is illegal.
Be aware that carrying any amount of valuables inside the US on one’s person or in a vehicle enroute to a shipping outlet is always subject to arbitrary confiscation by the police. Appropriate insurance or an arranged pickup is recommended.
The only common carriers that will ship precious metals to arbitrary international destinations are UPS and FedEx. UPS is known to arbitrarily refuse insurance claims for lost packages. The USPS can be utilized, but destination or transit countries may ban mailing precious metals, rendering insurance claims impossible. Outbound transfers of precious metals via common carrier must observe the same FinCEN CMIR filing requirements as above.
For large amounts of precious metals, armored carrier is preferable since full insurance and reporting is included in the delivery price.
When purchasing precious metals for investment, always consider the following:
Doing so will constitute a proper end-to-end wealth plan for a precious metals investment.
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By Jeff Clark, Editor of BIG GOLD
“Gold is one of the dumbest things to put in your IRA,” said the slick TV commentator, with his $200 haircut, perfect white teeth, and superior attitude. “Everyone knows income-producing vehicles are best for an IRA.”
I tried to ignore the prepackaged message from someone who sounded like he hadn’t given any more thought to the topic than what he’d read somewhere. His advice was misleading and incomplete, and I wondered how many viewers might weaken their portfolios by acting on his sound bite.
On one hand, he’s right: the tax-advantaged nature of an IRA makes income-generating assets ideal, especially when you factor in compounding. Gold generates no income.
And there’s another drawback to putting gold in an IRA, one the slick TV journalist probably never even thought of: you lose confidentiality. Gold is one of the last assets in modern society that still offers this advantage—and you’d have to give it up if you stick it in an IRA.
So on a cursory level, one might nod along with the empty suit on TV and conclude that gold should be excluded from a retirement account. But these concerns are only reasons not to hold all your precious metals in an IRA, or have your retirement account be comprised entirely of gold. Indeed, the reasons to put some gold in an IRA have grown—in fact, it might be a major strategic mistake not to have a gold IRA…
There are solid, core reasons why every investor should have some gold in an IRA. See which of these factors apply to you…
Your IRA is one of your biggest—or only—investment accounts. If an IRA is where most of your investment funds are housed, it may be your only chance to add physical metal to your portfolio.
You want to diversify into a non-financial asset. Think about it: if your retirement account consists of just stocks and bonds, then all of your IRA investments are in paper assets. In today’s world, that’s the pinnacle of risk.
Tax-advantaged growth. As with any asset, gains can compound tax-deferred inside an IRA (or tax-free in a Roth). The additional advantage with precious metals is that you can shift the allocation and not trigger a taxable event—for example, if you wanted to lighten up on gold to buy some silver.
Retirement inflation hedge. To have no inflation hedge in a retirement portfolio seems especially shortsighted in today’s monetary environment. Remember, regardless of what the “profit” column shows on your statement each year, those gains have to be adjusted for inflation—you’re eventually going to spend some of that money, after all. A dividend mutual fund yielding 2%, for example, nets you nothing after accounting for the current rate of inflation. And the further away you are from withdrawing the funds, the longer inflation is eating away at your account value. The answer is to utilize one of the best inflation hedges known to man.
If you share our concern about the consequences of global fiscal and monetary excesses, holding some physical precious metals inside a retirement vehicle is a prudent move. The Hard Assets Alliance provides that service. As you’ll see below, the Hard Assets Alliance just opened the door to international storage for IRA holders.
But first, why should we use the Hard Assets Alliance and not one of the other programs you might see advertised? Well, for the same reason we no longer start our cars with a crankshaft…
The process to set up a gold IRA has traditionally been slow and cumbersome. US law requires that IRA assets be held at a trust company to ensure proper tax reporting and recordkeeping. However, most gold dealers are not trust companies. For them to offer physical gold IRAs, they must partner with a trust company that’s willing to hold physical gold.
So when a gold dealer offers to purchase gold within an IRA, the process for the investor looks like this:
This procedure takes 30-45 days—it still takes a month, even if you already have an IRA or a relationship with a dealer. Further, dealers typically charge high fees when purchasing gold for an IRA. And when you want to sell or take a distribution, get ready for more paperwork, verification checks, and shipping fees, all of which take another 2-3 weeks.
This “manual” process has led to lengthy delays, unexpected costs, and never-ending frustrations. Check out some of the common complaints IRA holders have had with this antiquated system…
This doesn’t sound fun. Fortunately, the Hard Assets Alliance has completely changed how business is done with gold IRAs…
HAA’s program has streamlined the entire gold/IRA process and greatly reduces the time and hassle to open an account. In most cases, you can do everything online. It’s a breakthrough service, and we want to highlight it now, before the April 15 deadline, so you can still make a 2013 contribution.
The Hard Assets Alliance IRA reduces both time and hassle. The online platform lets you electronically create an IRA account and a trust account simultaneously. Entrust, a well-known custodian, provides the trust account, and it receives your application in real time. In most cases, it takes only 10-15 minutes to open a traditional or Roth IRA account; SEP and SIMPLE accounts take about one to two weeks to process, and Entrust will work with you to facilitate transfers. The process is straightforward and user-friendly.
Further, there are no additional fees to purchase or sell precious metals within a Hard Assets Alliance IRA. And like all Hard Assets Alliance products, all buying and selling can be done online.
As far as we know, this is the only fully automated online IRA trading system to offer physical precious metals.
The process is straightforward. You open an IRA account at the Hard Assets Alliance, and your application is automatically sent to Entrust. The submittal process takes about five minutes, and once approved, you can fund your account. An additional form is required for SEP and SIMPLE accounts. You can also fund your account by transferring a full or partial existing 401k into a Hard Assets Alliance IRA.
If you’re already a Hard Assets Alliance customer, you can create a separate IRA account using your existing username and password, and toggle between accounts.
The Hard Assets Alliance portal will notify you electronically once you’re approved (typically within two business days), and then you can fund your account. All funds go directly to Entrust since it’s the custodian. Upon receipt, it notifies the Hard Assets Alliance of your deposit, and your funds are available to purchase metal the next business day. It also takes care of all reporting, including tax statements.
The Hard Assets Alliance makes buying (and selling) easy; it’s all done online at your convenience, and comes with industry-low commissions since your order is bid out to a network of dealers. Further, only IRA-permissible bars and coins are displayed for purchase. The rules can get a tad complicated—that’s been another hazard: buy the wrong form of gold for a retirement vehicle, and you risk invalidating the entire IRA, triggering an unwelcome taxable event. No worries with the Hard Assets Alliance.
Until now, foreign gold storage for IRAs, while available for US investors, has been a tedious process, with the setup requiring a good deal of time, paperwork, and expense. However, the Hard Assets Alliance just announced that its vault in Zurich, Switzerland can be used to store Gold Eagles (only) in an IRA with the same ease and convenience of a US IRA. This gives us an international storage option for our gold—and in one of the strongest jurisdictions to boot.
This is a breakthrough offering in the industry—one you won’t find elsewhere. The minimum for this vault is $10,000 (the Hard Assets Alliance only requires $5,000 for US storage). If you don’t meet the minimum, open an account and fund it over time with a monthly direct deposit. By opening your account now, it can be ready to go when you are.
The reasons to put some gold in an IRA are mounting. And with the Hard Assets Alliance, we can avoid the VHS-tape versions of the industry and jump straight to Blu-ray. I encourage you not to put off making this strategic move for your retirement account.
The Hard Assets Alliance website and the SmartMetals Investor are published by Hard Assets Alliance, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated, and there is no obligation to update any such information.
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Affiliate Notice: Hard Assets Alliance has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Hard Assets Alliance affiliate program, please contact us. Likewise, from time to time Hard Assets Alliance may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service.
© 2014 Hard Assets Alliance, LLC.
“Click on any state in the map below for a detailed summary of taxes on retirement income, property and purchases, as well as special tax breaks for seniors. See more maps below, including the most tax-friendly and least tax-friendly states for retirees. See how selected states stack up on taxes that affect retirees. Hover over or click on any state in the map for the option to add the state to your compare list.”
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